New Delhi, Mar 4: Aggregate fiscal deficit of 19 states amounted to 25.9% of the budget estimate (BE) in Q3FY19, almost double the average of 13.2% during the last five years. Consequently, fiscal deficit touched 62.5% of BE during 9MFY19—the worst in at least the past eight years. Higher deficit was a result of weak tax receipts and higher spending. Total spending grew by a healthy 14.5% y-o-y in 9MFY19, led by strong growth of 23.1% in capital spending. However, growth in total receipts of 19 states lagged at 12.9% y-o-y during 9MFY19.
A combined analysis of the Centre and 19 states (general government) reveals that total receipts of the general government were weak in 9MFY19, as tax growth (at just 8.6%) was the weakest in seven years. Indirect taxes (incl. GST) were the key culprit, rising by a meagre 5.8% y-o-y in 9MFY19, as against an average growth of 16.1% in the last three years. General government spending rose by 11% y-o-y in 9MFY19 – faster than the growth seen in receipts. As a result, fiscal deficit of the general government amounted to 91.7% of BE – the worst in at least eight years.
Indirect tax collections in Q4 have amounted to 44% of the collections seen during the first nine months of the fiscal during the last three years. Assuming a similar ratio for Q4FY19, we estimate that indirect taxes are likely to fall short of the BE by as much as Rs 2.1 trn in FY19. The Centre has projected revised estimates for FY19 to fall short of the BE by Rs 730 bn. Taking this into account, the shortfall in indirect taxes is expected to amount to Rs .4 trn in FY19.
We have assessed the aggregate fiscal positions of the 19 state governments that have published their fiscal data up to Dec’18. These 19 states account for 90% of the aggregate state budgets.
The aggregate fiscal deficit of 19 states amounted to 25.9% of the BE in Q3FY19, as against an average of 13.2% in Q3 over the last five years. Consequently, during 9MFY19, aggregate fiscal deficit of the 19 states touched 62.5% of BE (v/s an average of 44.3% across last five years)—the worst in at least the past eight years. The Centre’s fiscal deficit, at 112.4% of BE, was also the highest in at least 19 years.
The aggregate fiscal deficit number of 19 states during 9MFY19 masks the substantial differences in the fiscal deficit of individual states. Bihar’s fiscal deficit was 5.5x the full-year BE during 9MFY19, while Kerala, Rajasthan and Madhya Pradesh almost breached their full-year targets during the period. On the other hand, the fiscal position of Uttar Pradesh, Karnataka, Jammu & Kashmir, Jharkhand and Himachal Pradesh remained quite comfortable. The largest Indian state—Maharashtra ran a fiscal surplus amounting to 25% of BE in 9MFY19.